POL3315 SLiu Final A - Grade: A PDF

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Sophia Liu Professor Claudia Halbac POL 3315 15 September 2020

Final A ISSUE 1: PARETO EFFICIENCY

Pareto efficiency, otherwise known as allocative efficiency, is defined as the ‘maximum well being’ for society. To elaborate, to maximize the satisfaction derived from scarce resources being allocated to unlimited wants or needs for all members of society. In short, it is to create or find a change that would create a scenario where members of society are better off, all the while creating no negative net change for other members of said society. (CaseFair) Pareto efficiency, ethics, fairness, and liberty are all goals that should be considered when considering an economic policy proposal. However, among these four potential goals, I would personally prioritize the fairness aspect when considering such proposals. Fairness, in the context of economics, refers to equitable outcomes to each and every member of society. Social class disparity and discrimination, with fairness as the main priority, would cease to exist. Economic opportunities and prosperity would be equally distributed to the people, and raise living standards across the world. (10/28 Lecture) Other principles such as ethics, pareto efficiency, and liberty require absolute unanimity when deciding on how to reallocate scarce resources in order to fulfill the wants and needs of the people, and it is fair to say that such scenarios are not entirely likely, and, as per the writings of Case and Fair, can be potentially effective, but not actually efficient. Fairness, in contrast, creates

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opportunities for all members of society, effectively creating a scenario where each member of said society can further develop the economy.

ISSUE 2: CHARACTER OF INCOME INEQUALITY IN THE US

Over the century, it has been noticed that, in terms of income inequality, Europe and the

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United States have essentially swapped places in modern economics. Piketty and Saez measured income inequality in the most efficient way they could - through the share of total income going to the top decile in total pretax income. Europe had a greater disparity in comparison to the United States, until the 1970s, where the United States reached unprecedentedly high percentages of income inequality, still continuing the positive trend today. (PikettySaez) The other measures we can use as an indicator of inequality are: mean-median divergence, gini coefficient, and quintiles. In my opinion, quintiles are the best form of measure for indicators of inequality when it comes to income. With quintiles, it is more efficient to determine which members of society require public assistance, which wealth classes belong to their respective tax bracket, and which classes are below living standards and those who live excessively above such standards. The other indicators listed above are not necessarily inefficient measures of income inequality, these indicators simply do not provide the most substantial information, leading to misrepresentation of higher wealth incomes. (Inequality PPT) There are several proposals created by members of society to attempt to tackle the income gap issue. Such examples would be raising taxes for the rich, giving people access to higher quality education, increasing federal minimum wage, universal basic income, etc. Though choosing a remedy entirely depends on perspective, even as far as political affiliation, I believe that direct assistance to the people is not an effective policy to pursue to remedy the income gap. Public assistance to lower income classes does not ensure the present and future of societal members to have the skills necessary for today’s jobs to fix the income gap. In short, access to quality education, whether it be to increase funds for public education, or making college free for two or four year colleges would be the ideal remedy to attack income gap. Though such a remedy may not directly attack the income inequality issue, creating opportunities for the many

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members of society allow us to have the skills and experience needed for most jobs today (Stone).

ISSUE 3: MICROECONOMIC POLICY—MARKET FAILURES

Oceana, an organization which exclusively protects and restores the ocean on a global scale, reported that Amazon has generated millions of plastic packaging waste last year. While Oceana reported that Amazon had used nearly 465 million pounds of plastic packaging waste, Amazon has responded by stating that only a quarter of the reported figures were actually used.

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No matter which side one chooses to believe, it is a fact that at least 100 million pounds of plastic packaging were put to waste last year. (Calma) This is a textbook example of a negative externality caused by market failure. While Amazon reported a net income of 11.59 billion last year, it also stands that over 100 million pounds of plastic packaging waste were produced by the same company. The waste produced by plastic packaging alone severely affects the natural environment of the future. According to the National Ocean Service, pollution and litter all cause unsafe river and ocean conditions, and in some areas, the pollution gets so bad to the point where beaches must close after a rainstorm. Negative externalities are, in this case, Pareto inefficient. The NOAA states that “Each year, millions of dollars are spent to restore and protect areas damaged or endangered by nonpoint source pollutants” (NOAA). A byproduct of Amazon’s negative externality has caused other resources to be allocated, whether it be economic or human capital. Simply put in terms of economics, the negative externalities Amazon has produced creates a distraction from an ideal and efficient economy (ShepsleBonchek). There are some solutions that the government can pursue to fix market failures and prevent damages from negative externalities. First option is to basically avoid any government intervention if possible in markets. Other solutions consist of: financial incentives and disincentives, regulations, and organizational based tools; also known as cap and trade. Having solutions to market failures are not as glamorous as it can sound, along with solutions comes issues. Some issues that will most definitely come along with the solutions are: rent-seeking and took much monitoring and enforcement. (Externalities PPT) Much like how the federal government announced the ban of single use plastic bags, it would not be that far off from banning any type of plastic being used in packaging either. There are plenty of other options of

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eco-friendly and sustainable packaging, yet plastic packaging seems to be popular due to its low price. The banning of using plastic packaging would be a great step to avoid such negative externalities shown by Amazon. One can even consider incentivizing sustainable packaging by offering grants or tax breaks, and on the other hand, disincentivizing plastic packaging. In the end, it is a matter of profits and income for businesses, ergo, using their own interests and ours may prove to be the most efficient tactic.

Works Cited Calma, Justine. “Amazon Generates Millions of Pounds of Plastic Waste.” The Verge, The Verge, 15 Dec. 2020, www.theverge.com/2020/12/15/22174990/amazon-packaging-millionspounds-plastic-waste-oceans-pollution-oceana. Case, Karl E., and Ray C. Fair. Principles of Economics. Pearson/Prentice Hall, 2006. “Inequality - Income Inequality - OECD Data.” TheOECD, data.oecd.org/inequality/incomeinequality.htm.

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Piketty, T., and E. Saez. “Inequality in the Long Run.” Science, vol. 344, no. 6186, 2014, pp. 838–843., doi:10.1126/science.1251936. Shepsle, Kenneth A., and Mark S. Bonchek. Analyzing Politics - Rationality, Behavior, and Institutions. AIPI-Publication, 2007. Stone, Deborah A. Policy Paradox and Political Reason. Norton, 2002. US Department of Commerce, National Oceanic and Atmospheric Administration. “What Is the Biggest Source of Pollution in the Ocean?” NOAA's National Ocean Service, 8 Oct. 2008, oceanservice.noaa.gov/facts/pollution.html#:~:text=Nonpoint source pollution can make,adversely affected by coastal pollution....